Some interesting paragraphs from the 100 Baggers book:
The greatest fortunes come from gritting your teeth and holding on.
Monster Beverage, a stock that became a 100-bagger in just 10 years—a remarkable feat that required a 50 percent annual growth rate.
“There is a Wall Street saying that a situation is better than a statistic,” Phelps said. Relying only on published growth trends, profit margins and price-earnings ratios is not as important as understanding how a company could create value in the years ahead.
Phelps wrote that investors have been conditioned to measure stock-price performance based on quarterly or annual earnings but not on business performance.
So it takes patience, some savvy stock picking and—as with most things in life—some luck.
how many people want to spend a large part of their time following ticker symbols, anxiously watching blinking lights on a screen and following the ups and downs of the market? It seems to me a better existence to instead know what you own and then really own it, as you would a rental property. Then you go about your life without all the baggage and worry that comes from sweating over the day-to-day or month-to-month value of your portfolio.
-The most powerful stock moves tended to be during extended periods of growing earnings accompanied by an expansion of the P/E ratio.
-These periods of P/E expansion often seem to coincide with periods of accelerating earnings growth.
-Some of the most attractive opportunities occur in beaten-down, forgotten stocks, which perhaps after years of losses are returning to profitability.
-During such periods of rapid share price appreciation, stock prices can reach lofty P/E ratios. This shouldn’t necessarily deter one from continuing to hold
-There is no magic formula to find long-term multibaggers.
-A low entry price relative to the company’s long-term profit potential is critical.
-Small is beautiful: 68 percent of multibaggers in the selected sample were trading below a $300 million market cap at their low. (They were microcaps.)
-Great stocks often offer extensive periods during which to buy them. -Patience is critical.
I’d add that many of his chosen stocks had top-management teams that made good capital decisions about how to invest company resources. There was often a large shareholder or an entrepreneurial founder involved. These can overcome the growth hurdle.
Conceptual power is more important. There is no amount of security analysis that is going to tell you a stock can be a 100-bagger. It takes vision and imagination and a forward-looking view into what a business can achieve and how big it can get. Investing is a reductionist art, and he who can boil things down to the essential wins.
The 100-bagger population seems to favor no particular industry.
I’ll add that the median sales figure for the 365 names at the start was about $170 million and the median market cap was about $500 million.
Despite occasional exceptions, you do want to focus on companies that have national or international markets.
So you must look forward to find 100-baggers. You have to train your mind to look for ideas that could be big, to think about the size of a company now versus what it could be.
A lot of people don’t appreciate how important the ability to reinvest those profits and earn a high ROE is.
First, know that the difference between a gross profit margin and an operating profit margin is expenses often dubbed SG&A—for selling, general and administrative—overhead, in other words. These operating expenses are volatile. When an underperformer improves, this is often an area where you see the improvement.
A good turnaround candidate would be one with a high gross profit margin and a low operating margin. The latter is easier to fix than the former.
I like ideas where the story is not obvious from the numbers alone. I want to find that something else is going on in the business that makes it attractive. These are rare, but the rewards of investing with them are often great.
But here’s what my research on stocks that returned 100 to 1 found: there were 187 stocks you could’ve bought between 1966 and 1982 that would have multiplied your money 100x. In fact, during that 17-year stretch, you’d have had at least a dozen opportunities each month to multiply your money 100x if you just held on. In some cases, you didn’t even have to wait very long. Southwest Airlines returned more than 100x in about 10 years beginning in 1971. Leslie Wexler’s L Brands did it in about 8 years starting in 1978.
Monster Beverage became a 100-bagger in 10 years, as we’ve seen. Remember the heat map above? I count at least 10 different occasions where it fell more than 25 percent during that run. In three separate months, it lost more than 40 percent of its value. Yet if you focused on the business—and not the stock price—you would never have sold.
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